Understanding The Benefits Of Consolidation Loans

Are you feeling overwhelmed due to non-payment of monthly debt bills? Are you falling behind on the monthly payment dates? Well, there are options that can help improvise your situation and ensure a debt-free status, within a shorter time-span. You can simply apply for a consolidation loan to repay the pending debts.

What is a consolidation loan?

A consolidation loan is basically applying for and taking out one single loan from a credit counseling agency to repay all the existing debts from multiple creditors. You must understand the fact that a consolidation scheme never promises to eliminate your debts. Rather, it makes the process more streamlined and manageable for the debtor. Rather than making payments to multiple creditors every month, you make only a single payment every month, to a fixed agency. Also, the consolidation loan scheme tends to reduce your overall monthly payment amount and the interest charges, associated with the same.

Comparing a debt management program, with that of a consolidation loan

Speaking about the debt management program, you need not have to apply for or take out a loan in such scenarios. The debt management program is designed in a way that would educate the debtors to modify their overall spending habits for eliminating the debts. Also, the discussion with the creditors is carried out to settle for a lesser amount, at lower interest rates to ensure easy repayment and clearing of debts.

On the other hand, a debt consolidation loan is a certain loan scheme where the debtor applies for a bigger loan from a specific credit counseling agency to repay the unsecured debts. This consolidation loan needs to be repaid under certain terms and conditions that seem to be easy-going on the debtor. Any kind of unsecured debts like, medical bills, student loans and credit card bills can be repaid using consolidation loans.

Is a consolidation loan a good or a bad option?

A consolidation loan can be a bad option, only if you continue, with your habits that resulted in such heavy debts. Overspending with credit cards or taking out more loans than you can afford to repay, may not help you with the consolidation schemes. So, you need to be very careful, with your money spending habits. Manage your finance carefully, or else, the scenarios can get really critical.

What do you need to qualify for a consolidation loan?

If you have a suitable credit score, you have a high chance of qualifying for the consolidation loan. However, if your credit score is not good, there would be higher fees and interest rates involved that may make the debt repayment look more difficult. If you have a limited income, such loan schemes can be difficult and inappropriate propositions.

Remember, you need to have a suitable credit score and enough monthly income to apply for consolidation loans. You can also opt for debt management programs from a non-profit credit counseling agency, if you have an unstable or low monthly income.

Author Bio: Steven Somers is a credit counseling consultant. He has worked on several debt counseling scenarios to settle the loans for debtors and creditors.